COUNTDOWN: All eyes are on September as a convergence of factors
come together to determine the direction of our real estate market, in
particular the secondary market

by NST RED: Jan Yong

September may be a watershed month for property buyers and investors as
a convergence of factors emerges which will set the tone and direction
of the real estate market in the coming months. In particular, if the
cooling measures by Bank Negara remain, the secondary market might be
adversely affected which might eventually affect the entire economy,
said Gavin Tee, a property consultant during an exclusive interview with
NST RED.
“The situation is dire as many people have had their loan applications
rejected as banks are now assigning a lower or more conservative
valuation to properties and thus offering lower loan amounts that are
based on the lower valuation irrespective of the purchase price. This
has resulted in the purchaser having to fork out more to make up for the
difference which in many cases they can’t resulting in their having to
withdraw their applications,” Tee explained.
Since the beginning of this year, there has been a significant drop in
loan approvals as a result of both the 70 per cent cap on LVR (Loan to
value ratio) for the third home onwards and a stricter loan evaluation
process which is now based on net income instead of gross income. The
drop has been estimated to be over 20 per cent compared to the same
period last year, according to sources.
Aborted sales: “Lately, a lot of resale (secondary) market buyers
suffered from not being able to get the fair market valuation price.
Most of them could only get 60 or 70 per cent loan margin resulting in a
lot of deals being called off. A lot of people lost their deposits due
to difficulties in getting a loan. Imagine even if you want to buy a RM1
million house from the developer (which does not face valuation
issues), you would still need to come up with cash of RM400,000. Imagine
how much this would impact the secondary market,” Tee elaborated.
Tee, who is also the Founder and President of SwhengTee International
Real Estate Investment Club acknowledged that compared to the primary
market, it was difficult to value second hand or subsale properties but
the fact remains that the Malaysian secondary market is definitely
undervalued relative to markets in other countries. “While the primary
market prices and global property prices have risen, our Malaysian
secondary market is still moving very slowly with generally low prices.
What more now with the lower valuation assigned by banks, the secondary
market may slow down even more as there will be much fewer transactions.
“A lot of people want to upgrade but cannot sell their house because
the buyers can’t come up with close to 50 per cent cash of the purchase
price, plus extra for renovation. So it becomes mission impossible to
buy in the secondary market. Buyers then go to the primary market,
resulting in more units coming into the market. More new stock means
prices in the secondary market become depressed.
“The situation is compounded with the 70 per cent cap on LVR and the
net income policy which have definitely dampened demand. And with the
general election and the Budget around the corner plus festive seasons
like Hari Raya and the Hungry Ghost month, the next two months are
expected to be very slow which will very likely lead to a watershed
month in September when all these factors come together. In a worst case
scenario, the impact which includes external weak sentiments like the
Euro crisis, might even snowball into a property market crisis,” said
the consultant.
Good news needed: Tee cautioned that unless the election and Budget
come up with some good news, and there are some easing of restrictions
in financing and valuation policies, a real estate market crisis might
be looming in the horizon.
“On the other hand, if the government were to review and ease the
financing restrictions, and optimism returns to the market, we may see a
robust property market which is healthy for the economy.
“Banks should relax their lending policies as no new loans are
effectively created in a subsale transaction. The effect is more like a
transfer of loan obligations at maybe higher interest rates. So, the
debt level of the nation is not so affected. If the secondary market can
boom again, it would also benefit the developers because there would be
more liquidity in the market which means more sales in the primary
market.
“We also don’t want to see a lot of unoccupied properties or in some
cases “ghost towns”, which can happen if the secondary market grinds to a
halt,” the consultant added.
Noting that there are many advantages to having a robust property
market, Tee said: “It gives confidence to foreign investors. It is a
crucial time now to maintain our secondary market movement as our
country opens up to liberalisation.
A booming property market no doubt helps fuel more foreign interest in
our market. As Greater KL aspires to be a world class city and the
property market becomes more globalised, it only makes sense for its
property market to be in demand. More property transactions also means
more income for the government in terms of the stamp duty and real
property gains tax collected. This money can be used to build the
infrastructure and develop the property market further, for example,
financing more low cost housing.”
In summing up, the property consultant recommended that commercial
banks be given the freedom like before to give loans of up to 90 per
cent margin especially for second hand properties. “The government
shouldn’t worry as banks are expected to practise prudent lending since
it is to their own benefit,” he said.
“The valuation aspects should also be looked into, for example,
speeding up the data on transacted properties. If such things are looked
into, then this slowdown may be seen as just a blip and this may turn
out to be the best time to invest (if you have the cash). Or you may
want to wait until September when the picture is clearer.
“If the market indeed falls in September, it is likely that the upcycle
will begin in March 2013 which will be the start of a supercycle when
properties will boom again due to the many infrastructure and mega
projects as well as other positive factors.”

About Me - English Version -

Gavin Tee, founder and President of SwhengTee International Real Estate Investors Club, brings more than 19 years of experience in property & retail marketing from both the United States & Malaysian markets to the writing of this book.

With his vast industry knowledge in the fields of sales and marketing, Gavin has conducted many training courses for various business establishments in Malaysia. Most recently, he was a professional trainer for the Continuing Education Program (CEP) of the KLSE Directors’ Training Program.

At present, he is actively involved in investment consultancy, project marketing, land investment and international real estate services.He is currently the Managing Director of Arborland & Co. as well as the Principal Consultant for Amcity Capital Sdn. Bhd. He is frequently featured in TV interviews and various media channels; besides that, he is a prolific author of 3previous books, and is currently an feature writer specializing in property investment matters.

Complementing his retail activities above are Gavin’s commercial activities, where he advises both upcoming and established property developers on land development, concept planning and overall marketing.In fact, one of his most successful strategies has been to get involved with a development in its conceptual stages where he will acquire units for resale as part of a bulk purchase in exchange for his expertise.As proof of his depth of investing experience, he has recently taken this strategy even further by investing in entire developments in partnership with developers who appreciate his business acumen and expansive vision.